Question

Explain and discuss how exponential functions effects Exponential growth or decline of money.

Answer 1

Exponential growth is a data model that shows a greater increase over time, creating an exponential function curve. For example, if the number of rats doubles in a year, starting with two in the first year, the population will be four in the second year, 16 in the third year, 256 in the fourth year and so on. In this case, the population doubles every year.
In finance, consolidated returns are causing exponential growth. The power of consolidation is one of the most powerful forces in the financial sector. This concept allows investors to generate large volumes with minimal start-up capital. Savings accounts with common interest rates are a common example of exponential growth.

Suppose you deposit $ 1,000 in an account that receives a guaranteed 10% interest rate. If the account has a simple interest rate, you will earn $ 100 per year. The amount of interest paid will not change as long as there is no additional deposit.

However, if the account has a common interest rate, you will receive interest on the total amount of the account. Each year, the lender will apply the interest rate according to the amount of the initial deposit along with any interest previously paid. In the first year, the interest rate is still 10% or $ 100. However, in the second year, a 10 percent rate was applied to the new $ 1,100 earned $ 110. With the passing years, the amount of interest has increased, which creates a rapid or self-inflicted growth. After 30 years without any other deposit, your account will cost $ 17,449.40.